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From the just concluded US elections, Donald Trump emerged as the presidential winner; coming as a surprise since markets had already calibrated a Hillary presidency into their assets pricing. With Trump headed for the White House, a lot of economic policy changes he had been advocating for during his campaigns may be easily implemented now that the republicans are a majority in the congress too. The radical nature of some of the changes proposed has sent jitters into the market but not everyone is worried; according to Pareto’s rule, there must be winners when others lose.
Financial markets globally dipped on the night of the elections as they absorbed the shock before rallying back up starting on Wednesday the day after the election. Even as the markets recovered from the shock, there are other stocks that were still falling based on which side of Trump’s economic policy stand they lay. Volatility kicked in across different stock exchanges with stock traders raking in huge returns; while online traders sought assistance from analysts in various binary options brokers to figure out the winning strategy in randomly fluctuating market condition.
Once the turbulence calms down, the markets will settle to a new normal as key sectors that are aligned with Trump’s economic policy changes gain, while those opposed to his proposed changes take a dive. The impact to various sectors of the economy arising from Trump economic policies will be felt differently based on the size of the sector and how big the proposed changes affecting the sector are.
Infrastructure
When giving his victory speech, Trump reiterated his promise to make America great again by building “highways, bridges, tunnels, airports, schools and hospitals.” This came as good news to the infrastructure industry since huge government expenditure on undertaking the above development projects will boost their revenues for as long as those projects are being executed. Trump has estimated the US infrastructure spending at between $500 billion and $1 trillion; numbers which saw the stock price for construction equipment companies Caterpillar and John Deere rise on Wednesday after the Elections Day.
Defense
During his campaign trail, Trump came out as a no nonsense man who will not be stopped by anything or anyone from securing the US citizens from both internal and external aggression. He promised to increase the size of the US Army and the Marine Corps in order to keep the country’s boarders safe and reaffirm the US as the global military super power. Defense contractors such as Lockheed Martin and BAE Systems saw their stocks rise too on the Wednesday after the election. Other potential gainers from the projected increased government expenditure on defense are helicopter makers Boeing as well as submarine makers General Dynamics and Huntington Ingalls.
Coal and Oil
Donald Trump is not a climate change enthusiast and as such his policies on clean and renewable energy are not expected to be as forceful as those advanced by president Obama. With Trump in the Oval Office, we can expect less stringent regulations on the fossil fuel businesses which had come under attack by the Obama administration. Coal companies which in most cases compete with wind and solar energy as alternative sources of power will have an easy time during Trump’s presidency.
After Trump’s victory, stock price for First Solar which is the largest solar panel market in the US dipped by about 8% before starting to recover the lost ground. Share price for another solar company SunPower fell by more than 12%; while the stock price for Vestas Wind System, a wind turbines manufacturer fell by 11%. This was against a 70% hike in the stock price of PeaBody Energy, which is the largest coal company in the US. Also on the gaining side was Westmoreland going up by about 17%.
Retail
Trump plans to introduce a new tax policy that will discourage US companies from investing abroad and motivate them to bring their manufacturing businesses back home. By imposing high tariffs on companies such Ford Motors, Trump hopes that they will move their manufacturing plants to the US from Mexico. However, the transfer of plants will take a longer time and the imposed tariffs will make the cars exported to the US more expensive and hence hurt their revenues in the short-run.
On the other hand Trump promised to reverse major free trade agreements including NAFTA and the TPP. If this comes to pass, large retailers such as Walmart, Zappos and Dick’s Sporting Goods among others will get a huge blow from the increased tariffs which will increase their costs and eventually hurt their top lines as consumers shift to more affordable products. A fall in their revenues will then translate to dipping share prices and the shareholders will ultimately have to book loses.
The die is cast and now we wait for a smooth transition of power from president Obama to president-elect Donald Trump. With the looming uncertainty as to how far Trump will go on implementing his radical economic policy changes, we can only hope for markets price in all the variables early on in order to avoid huge market shocks later on.
I’m curious about how the health sector will do. I initiated a position in CVS and ABT recently. Hoping to buy GILD, OHI, and CAH as well. Any thoughts?
Hi DM,
Near and medium term anything could happen with any stock in any sector. I still like the health sector a lot long term and picked up some CAH and ABBV in recent weeks. I think they should all be fine long term. My first concern is making sure the dividends are covered as I’m looking to increase my passive income stream rather than seek capital appreciation. I like the companies you mention. I have GILD, OHI and AMGN on my watch list and as I mentioned earlier picked up some CAH and ABBV. ABT is another name that I would consider buying. Thank you for commenting.
Great post! I was hoping that the markets would tank initially like the futures had been predicting the night of the election to give us all a chance to buy some stocks on the cheap. Instead the opposite happened!
I’m debating if I should sell my utility, AVA. It is held in my Roth and is currently up nearly 44%. I’m wondering how much it would drop if Trump pushes the Fed to raise rates…
Two Investing recently posted…October 2016 Income
Hi TI,
I think all of us were hoping for the market to tank after the elections. But, I can’t complain about the “Trump Bump” either as certain sectors took off while others have faltered. This has given us some better buying opportunities in many solid dividend stocks in the REIT, consumer staples and health sectors which is where I have been making my recent buys. Going forward, I think it’s a given that interest rates will rise but I do not fear it. The prospect of rising rates is not news to anyone and I feel the increases will be very, very measured over time. In other words, nothing to really shock the system. I plan on keeping all my utilities, D, ED and SO. As long as they keep pumping out those juicy yields I’m a happy camper. Thank you for stopping by and commenting.
You can already see sector rotation happening in the markets with investors moving out of bond proxies and in to infrastructure and defence companies as mentioned above.
As a UK investor it will be really interesting to see what policies Trump goes ahead with and which countries go to the front of the queue during international trade talks.
Money Grower UK recently posted…Coca Cola (KO) Stock Purchase – Keep It Simple When Investing
Hi MGUK,
After the U.S. elections a very clear sector rotation occurred. As you stated, bonds out, as well as REITs, consumer staples and many health stocks while industrial, materials and financial stocks took off. I’m still interested in a couple U.K. based stocks as they have come down quite a bit in recent weeks/months, DEO and UL. No doubt, the next few months will be interesting to watch from an economic standpoint. As always, I appreciate your comment.